Flexsteel Second Quarter Residential Net Sales Decline 14%

Furniture World Magazine

Flexsteel Industries, Inc. reported sales and earnings for its second quarter and fiscal year-to-date December 31, 2008. The Company reported net sales for the quarter ended December 31, 2008 of $84.5 million compared to the prior year quarter of $106.0 million, a decrease of 20%. The Company reported a net income for the current quarter of $0.3 million or $0.04 per share compared to net income of $1.9 million or $0.28 per share in the prior year quarter. During the current quarter the Company recorded pre-tax charges of approximately $0.5 million, or $0.05 per share after tax related to facility consolidation. Excluding these charges, net income1 for the current quarter was $0.6 million or $0.09 per share. For the six months ended December 31, 2008, the Company reported net sales of $176.0 million compared to the prior year sales of $206.9 million, a decrease of 15%. The Company reported a net loss for the current six-month period of $0.5 million or $0.07 per share compared to net income of $3.1 million or $0.46 per share in the prior year period. During the current six-month period the Company recorded pre-tax charges of approximately $1.8 million, or $0.18 per share after tax related to facility consolidation. Excluding these charges, net income1 for the six-month period ended December 31, 2008 was $0.7 million or $0.11 per share. For the quarter ended December 31, 2008, residential net sales were $58.1 million, a decrease of 14% from the prior year quarter net sales of $67.5 million. Recreational vehicle net sales were $4.9 million, a decrease of 67% from the prior year quarter net sales of $14.9 million. Commercial net sales were $21.5 million compared to $23.6 million in the prior year quarter, a decrease of 9%. For the six months ended December 31, 2008, residential net sales were $120.1 million, a decrease of 8% from the six months ended December 31, 2007. Recreational vehicle net sales were $10.9 million for the six months ended December 31, 2008, a decrease of 65% from the six months ended December 31, 2007. Commercial net sales were $45.0 million for the six months ended December 31, 2008, a decrease of 2% from the six months ended December 31, 2007. Gross margin for the quarter ended December 31, 2008 was 19.1% compared to 20.8% in the prior year quarter. For the six months ended December 31, 2008, the gross margin was 18.9% compared to 20.2% for the prior year six-month period. The decrease in gross margin percentage for the quarter and six month periods is primarily due to higher costs for purchased product and materials and to a lesser extent under-utilization of manufacturing capacity on significantly lower sales volume. Selling, general and administrative expenses for the quarter ended December 31, 2008 were 18.2% compared to 17.8% in the prior year quarter. This percentage increase is due to under-absorption of fixed costs on the lower sales volume and an increase in bad debt expense of approximately $0.2 million. For the six months ended December 31, 2008, selling, general and administrative expenses were 18.2% compared to 17.6% in the prior year six-month period. This percentage increase is due to under-absorption of fixed costs on the lower sales volume and an increase in bad debt expense of approximately $0.4 million. Working capital (current assets less current liabilities) at December 31, 2008 was $93.1 million. Net cash provided by operating activities was $9.3 million during the six months ended December 31, 2008 due to lower accounts receivable and inventory. Net cash provided by operating activities was $3.7 million for the six months ended December 31, 2007. Capital expenditures were $0.8 million during the first six months of fiscal year 2009. Depreciation and amortization expense was $2.0 million and $2.4 million in the six-month periods ended December 31, 2008 and 2007, respectively. The Company expects that capital expenditures will be less than $1.0 million for the remainder of the fiscal year. All earnings per share amounts are on a diluted basis. Outlook The consolidation of manufacturing operations that the Company announced on September 10, 2008 has been substantially completed as of December 31, 2008. Significant workforce reductions have taken place at other facilities as we continue to adjust operations to bring production capacity in line with current and expected demand for our products. Company wide employment has been reduced approximately 25% over the past year. Demand for our products is dependent on factors such as consumer confidence, affordable housing, reasonably attainable financing and an economy with low levels of unemployment and high levels of disposable income. These factors are all currently in poor positions, and indications are that they will remain that way in the near-term. We are not anticipating significant improvements in market conditions at this time, and are managing our business on that basis. While we expect that current business conditions will persist for the remainder of fiscal year 2009, we remain optimistic that our strategy of a wide range of quality product offerings and price points to the residential, recreational vehicle and commercial markets combined with our conservative approach to business will be rewarded over the longer-term. About Flexsteel: Flexsteel Industries, Inc. is headquartered in Dubuque, Iowa, and was incorporated in 1929. Flexsteel is a designer, manufacturer, importer and marketer of quality upholstered and wood furniture for residential, recreational vehicle, office, hospitality and healthcare markets. All products are distributed nationally. For more information, visit our web site at http://www.flexsteel.com.